At WSJ Event, Economists Cautiously Upbeat on China’s Shift

Officials in Washington voiced concerns Tuesday about the tempo of China’s economic shift away from state investment and toward a more market-oriented approach.

Beijing’s new leadership is looking to boost domestic consumption instead of overly relying on infrastructure building and other investment.

“They know that the buildup of inventory in the state-owned enterprises shows the market isn’t working,” Treasury Secretary Jacob Lew told the WSJ CEO Council attendees, days after returning from meetings with China President Xi Jinping and other Asian leaders. “They also seem to understand that they need to stimulate domestic demand.”

“What I didn’t get a good sense of was the seqence and pace of change,” Mr. Lew said. “We’re going to be pressing them to move faster” and also advocate for the direction of Beijing’s reforms when they become clearer.

The share of investment in China’s economy has grown from 28% a few years ago to 45% currently and needs to be reduced, said World Bank President Jim Yong Kim.

“We’ve actually never seen that level of investment in the world before,” Mr. Kim said at the CEO Council. “It’s tough because unwinding has to happen gradually, but they know they have to do it.”

Still, the economists and officials expressed some optimism that China will succeed in shifting its economy in a manner that will reduce but won’t erode growth too deeply.

“My guess is China will turn out more positively than expected,” said Stanley Fischer, former governor of the Bank of Israel. Gross domestic product growth in China of about 8% adds more to the global economy each year than the 10% growth in past years, when China’s economy was smaller, Mr. Fischer said.

U.S. Trade Representative Michael Froman told the gathering that from his perspective China has made progress in letting its currency move more freely, but he said it’s important to make sure China is living up to its trade and investment obligations under the World Trade Organization and other agreements.

Mr. Froman is hoping to complete as early as this year a deal to link a dozen Asian and Pacific economies, including Japan but not China, through a trade agreement known as the Trans-Pacific Partnership.

“We will continue to hold their feet to the fire,” Mr. Froman said of China, saying he’s seeing both positive and negative “data points” on trade and investment policy there. Washington is renewing talks with Beijing on a bilateral investment treaty between the countries, with the U.S. pushing to have as few industries excluded from openly investing in China as possible.

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